A go-shop period is a vital provision that allows a public company to explore competing offers even after receiving a firm purchase bid. This initial offer sets the floor for potential better offers. Typically, a go-shop period lasts between one to two months.
Key Insights
- Defined Duration: Go-shop periods typically last from one to two months, during which the company seeks a better deal.
- Bidding Rights: The initial bidder generally has the right to match competing offers and may receive a breakup fee if another buyer is chosen.
- Comparative Clause: A no-shop provision restricts the company from seeking other deals, preventing information sharing, offering, or soliciting proposals.
How a Go-Shop Period Works
The purpose of a go-shop period is to ensure a board of directors fulfills its fiduciary duty to shareholders by securing the best deal possible. Typically, these agreements provide the initial bidder the chance to match any superior offers the target receives. Additionally, they compensate the initial bidder with a reduced breakup fee if another suitor purchases the target company.
In an active mergers and acquisitions (M&A) environment, the possibility exists that other bidders may surface. However, critics argue that go-shop periods may be merely cosmetic, offering the board an appearance of acting in shareholders’ best interests. Historical data shows a small incidence rate where initial bids get replaced with new offers during go-shop periods.
Go-Shop vs. No-Shop
Go-Shop:
A go-shop period enables the company being acquired to market itself for a preferable offer.
No-Shop:
A no-shop provision, conversely, imposes restrictions upon the acquiree from seeking alternative deals. If the company under acquisition opts for a different buyer post-offer, a substantial breakup fee is required. For instance, in 2016, Microsoft announced plans to acquire LinkedIn for $26.2 billion under a tentative no-shop provision. Should LinkedIn have found another buyer, a $725 million breakup fee would have been payable to Microsoft.
No-shop clauses prevent the active shopping of the deal, barring the company from data sharing with, initiating dialogues, or courting proposals from other potential buyers. Nonetheless, companies are allowed to respond to unsolicited offers as part of their fiduciary duties. Many M&A deals commonly incorporate a no-shop provision.
Criticism of Go-Shop Periods
Go-shop periods frequently arise when a private company is being acquired by investment firms, like private equity firms. They are also becoming more common in go-private transactions, where a public company sells itself via a leveraged buyout (LBO). Despite this, go-shop periods infrequently result in another buyer surfacing.
Related Terms: mergers and acquisitions, no-shop provision, breakup fee, public company, private equity.
References
- Guhan Subramanian and Annie Zhao. “Go-shops revisited”, Page 1,217. Harvard Law Review, Vol. 133:1215, 2020.
- Microsoft. “Microsoft to acquire LinkedIn”.
- LinkedIn. “Schedule 14A - July 22, 2016”, Page 11.
